26 March 2001.

 -  FINANCE 2001 -

The world's stock markets are bouncing around like headless chooks.

Not surprising.  Stockbrokers and financial managers are in the process of losing their jobs.  Large scale corporations are dead.  Their carcasses will be picked over by predator corporations that will in turn become the carcasses for smaller scavengers.  It's dog eat dog, devil take the hindmost.

It is the new economy.  It is doing exactly what predictions said it would.  It is making everything cheaper.  The reason that things are cheaper is that marketing has become more efficient.  No longer do products require expensive TV and print media advertising & warehousing.  Entrepreneurs make products and sell them direct.  The old megamonopolies will go bust.

The problem is exacerbated by two forces:

  • The oil price.  The excess profits of the oil producing nations are stored as $US.  This produces a huge inflow of capital to the US.
  • The baby boomers are retiring for the next 10 years.   The funds for retirement must be invested in shares or real estate to provide income streams.  Consequently there are too many dollars chasing too few products.  So the price of the products will rise, and the quality will fall.
  • So what is the bottom line?  What will happen to stocks and bonds?   (The following analysis is offered without any guarantees...).
    1. Large scale energy production corporations will be a good bet for the next 5 - 10 years.  That is about how long it will take to develop photoelectric energy production as a competitor to thermal power.
    2. Utilities delivery (power, communications, gas & water reticulation systems) will be a safe investment, but they may become too greedy, and so attract legislation limiting their monopoly powers.
    3. Banks and financial services (personal loans, transactions and cash) will be a growth industry.
    4. Corporate financial services, insurance and investment corporations are pure poison.
    5. Mining and primary production will remain stable, with the best investments being small efficient corporations.  Large infrastructure mining corporations will no longer retain their traditional economies of scale.
    6. Large chemical corporations will diminish in size as the economies of scale produce smaller, more efficient competitors.
    7. Transport will be a huge growth area, with the caveat that growth will not be via large capital businesses, but franchised.
    8. Digital entertainment monopolies will lose out to napsters, printing industries will disintegrate as authors sell direct.
    9. Real estate will cease to improve in value and eventually go backwards as governments increase taxes on this last taxable resource.
    10. Health care will offer incredible growth, especially pharmaceuticals & Biotech.
    11. Education will also be a strong growth area, especially Information Technology.
    ADVICE:  If you are retired and have capital, you would be best advised to think about a way to return to the workforce.   Do not trust your capital in any single investment, especially do not hold more than 50% of your capital in shares.

    Try to develop your own new age corporation.

    1. Set up a web site and sell a product.  Setting up a web site is quite inexpensive, and does not require high technical skill.  Price and delivery is what sells goods, not Hi-Tech sites.
    2. Probably before you retired you knew a product.  Sell that product.  Quite likely you will find a way to undercut your ex-employer.  If you do not, someone else will.
    3. You do not need to make a large profit.  Being retired you can operate as a marginal enterprise for years.  During that time you will become expert in the new economy.
    As a corollary, the old economy will fight back.  For instance Rupert Murdoch is steering NEWS Corp. in the direction of the Chinese in an effort to find new markets to sustain his wealth.  The Chinese dictators (like the Russians before them) are deploying to fight the battles of the last (economic) war, the war of big corporations and elitist capitalists.  The corrupt but democratic Indians are showing a genius for fighting on the new battlefield, where small, flexible manufacturing units will fill niche markets and destroy the dinosaur megamonopolies.  The next big challenge to the USA democracy (following it's survival of Japan and the Clinton family) will be India.


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